The Wall Street Journal reported today (Paid subscription required) that U.S. Justice Department investigators crashed an industry Box Club meeting held last week among 20 ocean container shipping firms and served subpoenas to top executives of several lines.
According to the report, people cited as familiar with the investigation indicated that many of the CEO’s at the meeting were given subpoenas. Maersk Line, the unit of A.P. Moller Maersk, and the world’s largest container shipping line confirmed it was subpoenaed. Germany based Hapag-Lloyd also confirmed being served. Both firms indicated to the WSJ that they would cooperate with the investigation.
The report indicates: “The probe is the latest in a series of investigations by regulators around the world into possible price fixing as the largest ocean carriers have grouped into three major alliances, sharing port calls and vessels in an effort to save billions in annual operating costs.”
As Supply Chain Matters and others have recently noted, the WSJ report iterates that container shipping rates have spike markedly from levels in 2016. The report cites brokers in Europe and Singapore as indicating that for the Asia to Europe routing, rates have averaged $960 per container this year compared to $695 in 2016. Ship operators have consistently declared that anything below $1400 per container is unsustainable. However, the context of overall industry overcapacity seems to be missing in such a comparison since today’s vessels can haul far more containers per ship.
Drewry Shipping Consultants who tracks such rates, indicated in a recent report that rates on the Europe to Asia shipping lane rose sharply earlier this month, something that Drewry termed “highly unusual” for a traditional backhaul routing. A chief executive of consultancy firm Xeneta, indicated to the WSJ that rates for moving containers from Asia to the U.S. West Coast are up nearly 50 percent from rates negotiated in early 2016.
The report observes that this U.S. Justice Department action is the latest in a series of investigations by agencies in the U.S., the European Union, China, and South Africa.
Where all of this leads to is of-course, the subject of speculation and ongoing investigation. It does, however, by our lens, reflect a growing unease or concern as to the formation of current shipping firm alliances and pooling of capacity, with their associated influences on free market pricing. We have ranted before on such practices and we will leave it at that, given these ongoing developments.
Perhaps the most vulnerable victims to unusual or spiking container shipping rates are the many small and medium sized businesses who cannot take advantage of annual contact and shipping volume rates negotiated by brokers or third-party logistics firms. Thus, unexpectedly high spot market rates can have a significant impact on inventory import and export costs. With the current multi-industry focus on controlling or reducing supply chain costs, such pricing dynamics do not help in assuring adherence to transportation budgets set just weeks before.
Businesses, transportation procurement and logistics teams need to pay special attention to these ongoing shipping industry developments.
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